While its latest development, west of Oatlands, has the potential to generate power for more than 4,000 homes, the electricity will be used to offset costs of its irrigation business.

Mike O'Shea from Tasmanian Irrigation says only excess will end up in the grid. He says the majority of the power will be used to pay the costs of moving water to farms.

"Use the control panel, open up the valve at Arthur's Lakes, let the water down the pipeline and it comes through the power station, generates the power which is then transmitted down the power line to the grid," Mr O'Shea said.

"It then flows into Floods Creek Dam and then it's transported down the pipeline through the pump station to the irrigators."

Water is flowing from the Midlands Irrigation Scheme which is yet to be officially opened.